Low-carbon steelmaking faces high initial costs, market risks: Worldsteel

Reducing carbon emissions from steelmaking will likely see high initial costs and steel trade risks as first-mover producers saddled with high conversion costs compete with incumbents, according to industry group World Steel Association

Investments needed for making low-carbon steel with new plants and processes may lead to cost increases, which typical steel production margins would struggle to cover, Asa Ekdahl, head of environment and climate change at Brussels-based Worldsteel, said in a May 19 webinar.

Ekdahl referred to the International Energy Agency data estimating lower-emissions steelmaking would lead to a 10%-50% cost increase compared with traditional steel routes today. The changes to low-carbon steelmaking imply new policies and consumer behavior.

“While this transition to low-carbon steelmaking is happening, the steel produced that way will be competing with conventionally produced steel in the same market,” Ekdahl said. “Because the steel market is very international, a large portion of steel is traded internationally, which means that it’s very difficult to pass on costs to the consumers as prices are set in the international market — this will create a first-mover disadvantage for the steelmakers that make the shift first, and policy support are therefore needed.”

A call for new policies

Worldsteel expects new market-related policies are needed, especially during the difficult initial competitive period to remove first-mover disadvantage around initial investments.

Public procurement using low-carbon steel criteria, use of contracts for differences and feed-in tariffs applied to the sector, and quality assurances and benchmarking — such as being offered by ResponsibleSteel — were highlighted by Ekdahl. She leads Worldsteel’s engagement with international organizations, including the United Nations Framework Convention on Climate Change (UNFCCC) and the Organization for Economic Cooperation and Development (OECD).

Regarding the EU’s proposed Carbon Border Adjustment Mechanism, Worldsteel’s position is to not get involved in trade-related topics, while Ekdahl expected World Trade Organization rules needed to be taken seriously. The CBAM is a proposed mechanism aiming to impose a tariff on the carbon content of certain goods imported into the EU to prevent European industries from facing a competitive disadvantage from regions without carbon trading schemes.

Cost increases for low-carbon steel are expected from the combination of a number of factors, she said. These include the higher operating cost using low-carbon energy, such as green hydrogen and renewables; increased capital expenses such as replacing blast furnaces to hydrogen units and securing energy sources; and capital losses from the early write-off of existing assets, Ekdahl added.

The steel producer group is promoting a global technology-neutral approach in pursuing lower-carbon steelmaking. There is interest in expanding use of biomass, steel scrap, carbon utilization and storage, as well as hydrogen injection into blast furnaces to reduce emissions, rather than focusing on switching to fossil fuel-free processes and recycling.

Costs decrease

“There’s going to be a decrease in costs as we go through the curve,” Andrew Purvis, Worldsteel’s director of technology, environment and safety, said at the webinar.

While alternatives to hydrogen-based direct reduced iron appears to be growing in interest, hydrogen will expand overall in steel usage, and a scale-up in hydrogen supplies is needed, Ekdahl said.

The steel industry expects hydrogen prices need to be below $5/kg, and the IEA expects global hydrogen supplies, depending on region and source, falling to around $2-$2.5/kg, Purvis said.

S&P Global Platts assessed green hydrogen via PEM electrolysis, including related capex assumptions for supply, at Eur5.2635/kg ($6.43/kg) on May 18.

Biomass to provide energy for steelmaking, such as charcoal used at Aco Verde’s operations in Brazil, is potentially able to offset the emissions used during combustion and be climate neutral, although it’s not straightforward to calculate lifecycle emissions, she said.

Steelmakers may increasingly benefit from new revenue streams, reusing waste from steel processes into carbon products, such as synthetic fuels and chemical feedstocks. This approach is being pursued under pilot projects by ArcelorMittal and Thyssenkrupp.

Scrap recycling

Steel users are increasingly being requested to ensure products are suitable for reuse and recycling, so plants can make the most out of scrap metal and limit impurities. Using some scrap with pig iron is common in the blast furnace route in Europe, but higher emissions associated with pig iron could lead to changes. No changes to steel qualities are expected, however.

“Today we can dilute, which means that you are able to decide which scrap qualities you want to use and how much virgin material to put in,” Ekdahl said.

“In the future we might have to be more careful with that.”

Better scrap processing technology in the scrap value chain to keep impurity elements out, such as copper, which can be detrimental to steel qualities, may be needed along with advances in alloying, she said.

The overall ferrous scrap recycling rate is currently estimated at about 85%, which limits room for improvement, the group said.

“There is no single solution to drastically reducing CO2 emissions from our industry, and we believe that individual countries are best placed to assess and implement policy and technical strategies to suit their particular circumstances,” Worldsteel said in a May 17 statement, accompanying its public policy paper on climate change and the production of iron and steel.

“What is absolutely clear is that governments and other stakeholders will need to work with the steel industry to overcome the technological and economic challenges and create the market conditions necessary for the steel industry to transition to low-carbon steelmaking effectively,” Worldsteel’s director general, Edwin Basson, said.

— Hector Forster